Americans Are Alarmingly Underinsured for Flood Damage
According to new data from the Federal Reserve, nearly three-quarters of expected flood damage to American homes is currently uninsured — and Republicans and those who don’t perceive personal harm from climate change are more likely to lack adequate coverage.
Nearly three-quarters of expected flood damage to American homes is currently uninsured, according to new data released by the Federal Reserve — and Republicans and those who don’t believe they’re personally threatened by climate change are more likely to be among those underinsured.
In a new Federal Reserve working paper, researchers estimate that there will be $24.4 billion in future annual financial losses as a result of flood damage to single-family homes — and more than $17 billion of that potential damage is currently uninsured. What’s more, 80 percent of households at risk of flood damage do not have adequate coverage, with the average home needing roughly $7,000 more in insurance to cover potential damage.
In areas known to face the most acute threat of flooding, such as those affected by hurricanes and other areas prone to flooding, more than half of the expected damage to homes remains uninsured. The study also found that more than 90 percent of those in the lowest income brackets lack adequate flood insurance — a problem that will likely become more acute as flood insurance premium rates continue to increase.
Taken together, the findings suggest that without emergency government bailouts, many Americans could face the prospect of enormous out-of-pocket costs, bankruptcy, or homelessness in the wake of expected floods.
“Understanding the magnitude of this insurance crisis is necessary to identify potential solutions for the mitigation of financial losses from physical climate risks,” the authors wrote.
The report also examined the role of people’s beliefs in their insurance decisions. In their study of millions of single-family households, researchers found that “a 10 percent higher share of survey respondents perceiving personal harm from global warming is associated with 26.7 percent lower underinsurance.” They also found that “a 10 percent higher share of Republican voters is associated with 14 percent higher underinsurance.”
According to the study’s authors, “our results suggest that household beliefs regarding future climate risks may be a larger determinant of underinsurance” than “policies that change the price of flood insurance.”
The findings suggest more research is needed to parse how partisan political battles over climate change could be impacting environmental action. A recent New York University study of 60,000 people in sixty countries, including the United States, found that despite different opinions, liberals and conservatives worldwide take action to address climate change at roughly the same levels, such as supporting the construction of EV charging stations and raising carbon taxes.
The new warnings from the Federal Reserve also come at a time when thirty-three out of the poorest fifty counties nationwide are in states governed by Republicans. This includes counties in hurricane-affected areas such as Mississippi, Louisiana, Alabama, and South Carolina.
Flood insurance premiums are rising, with almost a quarter of people surveyed in 2022 by the mortgage financing company Fannie Mae saying that flood insurance is not affordable. ZIP codes in Louisiana, Kentucky, Ohio, and Texas — states at a particularly high risk of flooding — will see significant premium spikes in the years to come, according to data collected by the Federal Emergency Management Agency, which helps Americans prepare for, respond to, and recover from disasters.
As climate change wreaks havoc on the country’s insurance safety net, the repercussions could set the stage for the next financial disaster. A new report from the Senate Budget Committee that extensively references the Lever’s reporting warns that “we must speed the transition to clean energy and eliminate carbon pollution” to avoid triggering “a full-scale financial crisis similar to what occurred in 2008.”